International firm activities, R&D, and productivity: evidence from Indian manufacturing firms

This study investigates whether R&D intensity has a moderating effect on the links between international firm activities (viz. exports, trade in imported inputs and capital goods, and foreign direct investment) and productivity. We also explore whether the moderating effect of R&D intensity vis-à-vis the underlying relationships differs for firms in high-tech versus low-tech sectors. The results show that, unlike low-tech firms, high-tech firms with higher R&D intensity in the previous period derive substantial productivity gains from FDI and the utilisation of imported inputs and capital goods. Furthermore, compared with internationally active high-tech firms, domestic high-tech firms have lower productivity gains from higher R&D intensity in the previous period, while the impact of higher R&D intensity on domestic low-tech firms is insignificant. Policies that create an enabling environment for public support for R&D, including the provision of R&D tax incentives targeted at internationally active high-tech firms, would help in enhancing productivity.